Coronavirus at Christmas: The Q4 outlook for food and drink producers

7 min read

Food & Drink

This is the latest update from Santander’s Food & Drink team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Food & drink

We’re continuing to work closely with our partners and clients from across the food and drink sector as they manage the challenges presented by the coronavirus crisis. But not every sub-sector of the industry has been affected in the same way, with some areas reporting increased sales during the pandemic. Functional and health foods provide a good example.

This is a sector that has developed rapidly in recent years, with products spanning areas such as cereals aimed at improving gut health, high-protein soups and soft drinks with added vitamins. Many Britons are switching to different types of diet and exercising more frequently, increasing demand for functional foods.

Before the pandemic, growth in the functional food sector was threatened. Kantar reports that while Britons spend more than £20bn a year on food and drinks chosen for health reason, their appetite for ‘an ever-increasing number of benefits from each product’ and the view that eating healthily costs more have been undermining the market.

Indeed, Kantar says that before coronavirus, there were 25m fewer food and drink servings chosen for health reasons over the previous year. The decline, mirroring lower consumer confidence, was similar to the experience of the 2008-09 recession. Some areas continued to outperform, and health remains big business with key products including dried fruit, nuts, pulses, honey, yoghurt and olives; and a fifth of all breakfast servings are chosen for health reasons. Still, the decline was evident in areas such as snacks, which recorded a 7% fall in afternoon servings chosen for health reasons despite an increasing number of products.

However, the pandemic appears to have reversed this trend, with suppliers reporting renewed interest in functional products. While initial panic buying has subsided, sales are still, on average, 30% higher than this time last year. Low-sugar and high-protein granolas, two of the sector’s best sellers, are performing particularly strongly. But across the whole of the sector, consumers’ focus on health – despite the fact that no diet has been shown to ward off coronavirus or limit its affects – is providing a significant boost to functional and health foods.

Analysts anticipate further growth to come from immune system-boosting products. Consumers are particularly focused on vitamin C. Immunity drinks such as function teas are also performing strongly. Tetley says sales of its Super Fruits Immune Peach & Orange, Super Fruits Multivitamin Summer Berry and Super Herbal. 

Multivitamin Turmeric & Camomile drinks – were up in volume terms by 34%, 343% and 618% respectively over the four weeks to 21 March. 


Supporting growth in the sector

Our sector partners in international markets also report a significant increase in demand for health and wellbeing products. We have several initiatives to assist UK manufacturers wanting to take advantage of market conditions by accessing new territories:

  • France: We plan to have a trade mission to France in October. The trip is currently scheduled as a visit to Paris to meet key buyers across all delivery channels, but a digital mission is possible instead if travel remains restricted.
  • United Arab Emirates: In the UAE, we have a partnership with Al Maya, a major retailer, which has enabled us to secure shelf space for up to 30 brands in a ‘Best of British’ week in its main stores during November. This is a fantastic opportunity to get products better known in a growing market. We will work closely with Al Maya’s UK representatives to help brands prepare for export, with help in areas such as labelling, regulation and logistics.
  • Spain: We’re planning a digital trade mission to Spain in late summer. We hope to have more information next week when we run our latest industry webinar on the health and wellness sub-sector.


How the UK’s quarantine plans affect the industry

The Department for the Environment, Food and Rural Affairs is reportedly close to securing an exemption for large parts of the food industry from the proposed new quarantine arrangements. These will require travellers to the UK to quarantine for 14 days on arrival, which food industry groups say could bring factories to a standstill.

Bodies such as the Food and Drink Federation (FDF) have joined other sectors in warning that the quarantine proposals could cause real problems, with particular concern about foreign maintenance staff. “Dozens of factories will have regular need for engineers to maintain production, and the only way is if you get an engineer from the machinery company,” warns FDF chief executive Ian Wright. Another source describes the proposals as a “nightmare” for the farming sector and “pointless”, given that arrivals from France and Ireland would continue.

However, The Grocer magazine reports that environment secretary George Eustice is pushing for exemptions for seasonal workers and specialist engineers servicing the food sector.


This week in food & drink

The government has agreed to underwrite trade credit insurance for the rest of the year to keep supply chains moving, The Grocer reports. The magazine also reports on a campaign to get the government to appoint a ‘minister for hunger’ amid concerns about vulnerable people struggling to get food, with FDF CEO Ian Wright warning of the need for the government to tackle food supply issues.

Elsewhere, The Grocer reports sales of stilton have fallen by as much as 30% amid the pandemic, largely because of the collapse of the food service, hospitality and export markets. By contrast, sales of butter have soared, partly because of initial panic-buying but also because people appear to be changing their diets.

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